Understanding How Hydro Quebec's Winter Credit Option Works

Background

Hydro Quebec (referred to as HQ further on) is the Quebec province's main energy utility. It derives nearly all of its energy from hydroelectric dams. Other energy sources include wind, solar and fossil fuels. Quebec residents enjoy some of the lowest energy rates in the world.

Unfortunately, much of the infrastructure is aging and the demand for more energy continues to increase dramatically.

For many years now, HQ has started to educate residents on wise energy use, especially during frigid winter days where the electrical grid comes under significant strain. During such critical events, HQ needs to bring fossil fuel electrical generators on line to meet demand. This is costly compared to hydroelectricity and environmentally unfavorable.

One of the programs to entice residents to reduce energy usage during such critical events is Rate D with Winter Credit Option.

What is Rate D with Winter Credit Option?

First off, Rate D is the standard electrical rate for most non-commercial (domestic) clients. It is a tiered rate, with the first tranche of 40 kWh per day charged at one rate and the remaining energy above 40 kWh charged at a higher rate. This effectively comes to a combined rate of about CAD $ 0.11/kWh.

Adding the voluntary Winter Credit Option (WCO from this point on) to the base Rate D has no downside. It doesn't change your billing at all if you don't change your energy consumption. However, if you reduce your energy consumption when HQ requests it, like during frigid winter days, HQ will credit you $ 0.56786 per kWh of saved energy (HQ calls this curtailed energy). This credit is over 500% the base rate D, making it very attractive to the client to save energy. It is like saying for every kWh a domestic user saves, HQ will credit you the equivalent of 5 kWh!

The WCO program starts on December 1st and ends on March 31st each winter season. There can be a maximum of 30 critical events, where HQ asks you to reduce your energy during a period of 4 hours. These critical periods are usually 6am to 10am and 4pm to 8pm. Certain holiday periods are excluded from the program completely (Christmas, New Years, Good Friday).

So how is energy saved (curtailed) calculated?

Ah, this is the most important question to ask. For HQ to determine how much energy you didn't use during a critical event, HQ needs to determine an estimate of what you would probably use during a critical event.

In the simplest terms, here is what HQ does to create your estimated energy consumption during a critical event:

• HQ establishes a reference period that is 2 or 3 hours long that starts 4 or 5 hours before the actual critical event.
• HQ determines what you normally consume during this reference period on non-critical winter days.
• HQ then uses what you actually consumed during the reference period and compares it with what you normally consume.
• The difference, in kWh, is called the temperature adjustment.
• HQ then determines what you normally consume during the critical event period and adds the temperature adjustment to finally arrive at a fair estimate of your energy consumption during the actual critical event.

In summary, HQ compares normal consumption prior to the critical event with actual consumption prior to the critical event and takes the difference in kWh as an assumption of what your critical event consumption will be.

An example

• HQ determines that a critical event will occur tomorrow, in the AM, between 6am and 10am.
• HQ requests all clients to reduce energy during this period (email alert, smartphone app).
• For the AM critical event, HQ determines the reference period to be 1am to 4am, starting 5 hours earlier for a period of 3 hours.
• HQ determines an average usage of 3 kWh for the reference period (more the actual method later on).
• HQ records actual energy consumption of 6 kWh during 1am and 4am of the critical event day.
• HQ sees that for the 3 hour reference, 3 kWh more consumption occurred, or 1 kWh per hour of the reference period.
• HQ now determines the average energy usage of 12 kWh during 6am to 10am event (more the actual method later on).
• HQ adds to the 12 kWh an additional 4 kWh, based on the 1 kWh per hour more energy consumed during the reference period.
• HQ calls this 12 + 4 = 16 kWh as Reference Energy.
• During the actual critical event between 6am and 10am, if you consume less than the Reference Energy, you are eligible for credit.
• Assuming you reduce your energy to only consume 10 kWh during the critical event, you would have saved (curtailed) 6 kWh and thus have a credit of 6 * $ 0.56786 or $ 3.40 applied to your bill.

The Problem With the Reference Energy (estimate of your critical event consumption)

Since it is impossible to actually know, in advance, what you normally would consume during a critical event, HQ has no choice but to create an estimate. This estimate is based on some simple mathematical rules and is detailed in the official HQ Tariff Rate Guide annually. After the WCO program was introduced in 2020, some clients determined that one could artificially inflate the calculated Reference Energy. The Reference Energy is, after all, simply what you normally consume during 6-10 am plus the temperature adjustment. Since the temperature adjustment was simply your actual consumption during 1-4 am less your average consumption, one could significantly increase the kWh that represented the temperature adjustment by increasing your actual consumption during the reference period, even by a lot.

An Example of Artificially increasing the Reference Energy.

We'll reuse the example previous stated with one small change...

• HQ determines that a critical event will occur tomorrow, in the AM, between 6am and 10am.
• HQ requests all clients to reduce energy during this period (email alert, smartphone app).
• For the AM critical event, HQ determines the reference period to be 1am to 4am, starting 5 hours earlier for a period of 3 hours.
• HQ determines an average usage of 3 kWh for the reference period (more the actual method later on).
• You decide to increase your energy consumption during the reference period, by a lot.
• HQ records actual energy consumption of 27 kWh (instead of 6 kWh) during 1am and 4am of the critical event day.
• HQ sees that for the 3 hour reference, 24 kWh more consumption occurred, or 8 kWh per hour of the reference period.
• HQ now determines the average energy usage of 12 kWh during 6am to 10am event (more the actual method later on).
• HQ adds to the 12 kWh an additional 32 kWh, based on the 8 kWh per hour more energy consumed during the reference period.
• HQ calls this 12 + 32 = 40 kWh as Reference Energy.
• During the actual critical event between 6am and 10am, if you consume less than the Reference Energy, you are eligible for credit.
• Assuming you reduce your energy to only consume 10 kWh during the critical event, you would have saved (curtailed) 30 kWh and thus have a credit of 30 * $ 0.56786 or $ 17.03 applied to your bill.

Note, there was no downside to attempts to boost the Reference Energy and no risk. Every additional kWh consumed during the reference period netted $0.46, regardless!

Some HQ clients took this boost to the extreme. Public news articles began to appear where clients wasted significant energy during the reference period, for example, by leaving all the windows open, in order to boost the temperature adjustment and the resulting reference energy high enough that they did not need to bother with reducing energy at all during the critical event and still get HQ to pay them credits exceeding $1000 per winter season!

This abuse of the HQ WCO program did not go unnoticed. Not only were clients deliberately wasting energy, they weren't reducing the necessary energy during the critical event. This was the exact opposite of the goal of the HQ WCO program!

HQ introduces a better algorithm for Reference Energy

Starting with the 2025-2026 winter season, HQ decided to cap or limit the temperature adjustment to not more that twice the average energy usage during the reference period. This limit would only be applied if, in fact, the energy curtailed by the client exceeded 40 kWh during any single critical event.

The follow graph shows the effect new algorithm.